The Risk Management Effect of Corporate Social Responsibility on Shareholder Value

Using an event study and data of publicly traded firms in Taiwan from 2005 through 2010, we examine the impact of corporate social responsibility (CSR) on mitigating the declines in shareholder value when firms are disclosed of negative events, i.e., the risk management effect. Our results show that firms engaging in CSR activity have less stock price declines when negative news are disclosed. We also find that this effect is significant for safety-related negative events, but not for market-competition and integrity-related events. Furthermore, the empirical results show that CSR has a long-term effect on reducing stock volatility.